Wednesday, April 19, 2006

Big Producers in Alliance with Regulators Squeeze Small Producers

“Toxic Regulation” by David Schoenbrod in City Journal, Spring 2006

"The FDA [Food and Drug Agency, established 1906] had gotten involved with cider …. when an infant in California had died because of E. Coli contamination in bottled fruit juice. The juice had come from Odwalla, at that time a large West Coast company, but the FDA began to consider regulating all producers of fruit juices, down to small cider makers. E. Coli can get into cider because deer and mice, which are among its carriers, have a taste for apples. One response is to pasteurize the juice, which also brings the commercial benefit of longer shelf life. Odwalla, however, had taken pride in not pasteurizing; it advertised its products as tasting better because they were only minimally processed. After the E. Coli outbreak, it installed equipment that pasteurizes by heating and cooling the juice in such a flash that the taste is not much affected.

The Apple Processors Association, dominated by large companies, urged the FDA to require that all juice be pasteurized. That would have been ruinous for small cider producers. At that time, equipment that pasteurizes in a flash cost upward of $70,000. Even budget pasteurizers cost $25,000, but they are prone to cook the taste out of cider and require extra employees to operate. Cider that tasted like canned apple juice, plus higher operating costs, spelled bankruptcy. Not so for the members of the Apple Processors Association.

They already pasteurized, and stood to pick up the sales of the small producers driven out of business.

In any event, the FDA proposed to decree that juice be put through a sanitizing process that would cut bacteria levels at least 100,000-fold. Culling the apples and then washing them would probably have accomplished that, but the rule required that the cut take place in one step. The only way to do that was pasteurization. While still pondering this proposal, the FDA promulgated another rule that the Apple Processors Association wanted. Any unpasteurized juice must carry a label with this chilling warning: this product has not been pasteurized and, therefore, may contain harmful bacteria which can cause serious illness in children, the elderly, and persons with weakened immune systems.”

[Read the whole article by David Schoenbrod about how the FDA, in alliance with large scale producers of cider, affected one small cider producer, despite its owners and friends actually inventing another proven scientific method to achieve a reduction level of bacteria to at the least 100,000 level, but at costs small producers could afford and therefore survive:http://www.city-journal.org/html/16_2_regulation.html]

CommentThe is a sorry example of how big producers gang-up, in this case in a dubious alliance with the regulating body (whose proud claim to fame appears to be how many regulations they can legally impose in businesses), on smaller companies to reduce competition and re-carve markets in their favour.

Adam Smith said a lot about the proclivity of 18th-century ‘merchants and manufacturers’ to descend into the ‘spirit of monopoly’ in ‘Wealth of Nations’. It remains a wonder that many upholders of competition have not grasped the fact that many so-called competitive players in markets have a predilection in favour of reducing competition, even in eliminating it. All conspiracies against competitors end in actions against the interests of consumers.

In this case the Apple Processors Association (an ‘Agri/Washington Managed Association’, i.e., Washington based lobbyists) followed the tragic death of a child with a policy, adopted by the FDA, that dealt a mortal blow to small traditional apple juice producers, which had the beneficial (for its members) consequence that the small producers’ share of the cider market became available for redistribution, and, as important, the barriers to entry of new players in this market were raised.

The alternative technology used ‘ultra-violet’ light to sanitise the juice to the required standard and cost $12,000 in place of pasteurisation equipment at $75,000. But by adopting only one method (pasteurisation) for approval, on the recommendation of the hired Washington lobbyists, the FDA declined to even test the alternative ultra-violet equipment for months. This conforms to the prejudices of input only methodologies common to bureaucrats, when the true scientific methodology, and the one that boosts innovation, should always be to test outputs in preference to inputs.

Notes:“Agri/Washington has been in business in Washington, D.C. since 1982. During the past twenty years, the firm has provided management to nearly a dozen associations, and completed hundreds of programs and projects, including food and nutritional conferences, crisis management and personnel consulting. Agri/W a s h i n g t o n is as much at home in the field with producers, as it is in the halls of government with elected officials and policymakers.”(see its web site: http://www.agriwashington.org/index.php?pr=Clients)

Apple Processors Association “was founded on July 20, 1987, and is a national association of companies that manufacture quality apple products from whole apples. Members are either apple grower/processor cooperatives, or proprietary firms. They each grow a portion of the apples processed in their plants. APA members produce a majority of the nation's applesauce, apple juice, and specialty products.All members of APA stress quality and safety in their food processing operations. They pasteurize their juice products, and hotfill their food containers, reinforcing their commitment to quality and safety during their food processing operations.” (see its web site: http://www.appleprocessors.org/)